The following pie-graph shown market distribution of diesel and petrol cars in INDIA

Based on above the following data has been tabulated:

S. Year Total Car Petrol Car Diesel Car

S.No Year Sales of diesel Year on growth

The following table gives insight into petrol Vs diesel price in last year’s.
Widening price gap drives buyer preference for diesel cars
A sharp rise in petrol prices in the past year further widened its gap with diesel prices. Petrol
prices increased by 24 per cent, with the deregulation of petrol prices in June 2010 that enabled
oil-marketing companies to increase petrol prices in line with any sharp rise in global crude oil
prices. Diesel prices, which are still regulated, rose by only 7 per cent. The price gap between the
two fuels therefore widened by almost 4 per cent from 2008-09 to first quarter of 2011-12. This
strengthened buyer preference for diesel cars and UVs. CRISIL Research therefore expects
diesel penetration in the Indian cars & UVs segment to rise by 2-3 per cent to 38-40 per cent in
2011-12.
Due to lower price of diesel and widening price gap with petrol, there was a surge
in the demand for diesel models in most of the passenger vehicle segments,
despite the petrol variants being priced cheaper. Another complementing factor
was the relatively higher fuel efficiency of diesel models. These two factors can be
presumed to be the prime reasons for impacting the sales of petrol vehicles for
the first time in history during 2011-12. Many models that were offering both the
fuel options, the diesel variants accounted for as much as 80% of sales during
2011-12. According to the Society of Indian Automobile Manufacturers (SIAM),
the proportion of diesel car sales to total sales has steadily risen from 21.4% in
FY08 to 28.42% in FY11. However, in FY12, at least 40% of the total cars sold in
the country run on diesel.
Seeing this trend many top makers like Maruti, Hyundai and Ford have announced
investments to boost diesel engine capacity. However, in case of complete
deregulation of diesel prices, there may be some moderation in the rush for diesel
cars. But then as per industry experts, an increase in diesel price will have very
little impact on UV and commercial vehicle demand, but may slightly shift demand
to petrol driven cars in the passenger car segment in the small and mid-range.

INTRODUCTION
Diesel and Petrol are strategic commodities; they play a vital role in the socio-
economic development of a country. Any uncertainty about their supply can
impact the functioning of the economy. In order to reduce this uncertainty it is
important to plan and use the resources judiciously. But, before planning, it is
essential to understand the consumption pattern of these products. Tentative
information pertaining to category-wise overall consumption is available with
different sources but there is no correct picture available on category-wise retail
sales of Diesel / Petrol, as it is not maintained by dealers operating the retail
outlets. It is important to note that during last one decade, retail share in total
diesel sale has gone up from 78.5 to 82.1 per cent in 2011-12

The objective of the study is to find out effect of rise in petro prices on sales of cars
in INDIA, in particular the effect on sales of petrol and diesel cars.

Though India is the world’s fourth-largest energy user, its per capita consumption
is among the lowest in the world. Stagnant output of crude oil has increased
external dependence for its sourcing (77% on consumption basis) and as a result
crude oil constitutes the major item in India’s import bill. Rising crude oil prices
and volatility has negative implications for the Indian economy and the ambition
of putting the economy on a higher growth trajectory.
In view of the criticality of energy usage for economic growth, it is imperative for
India to formulate appropriate policies and strategies that reduce dependence on
crude and product imports and review pricing strategies of regulated products,
especially diesel. Lack of information on sectoral demand of diesel and petrol not
only poses a challenge for taking policy decisions by the Government, but also
creates a deficiency when it comes to demand estimation of these products. This
necessitates estimation and analysis of diesel and petrol consumption trends in
different sectors/ sub-sectors of the economy.
Diesel car sales to more than double by 2015-16: CRISIL Research
Diesel car sales will almost double from current levels to 2.3 million units in 2015-16, estimates CRISIL
Research. Diesel penetration – the proportion of diesel cars in total cars sold – will rise from the current
36 per cent to 45 per cent in 2015-16. Customers are more likely to prefer diesel cars, as the gap
between petrol and diesel prices has widened. The greater fuel economy of diesel cars assumes
significance with the increasing traffic congestion on Indian roads. Carmakers, in response, are launching
diesel variants of their models, especially in the small car segment, which accounts for more than 60 per
cent of car sales in the country. Even if the government increases excise duties on diesel cars or reduces
subsidies on the fuel, we still expect diesel penetration of not below 40 per cent by 2015-16, given the
big price gap between petrol and diesel.
Widening price gap drives buyer preference for diesel cars
A sharp rise in petrol prices in the past year further widened its gap with diesel prices. Petrol prices
increased by 24 per cent, with the deregulation of petrol prices in June 2010 that enabled oil-
marketing
companies to increase petrol prices in line with any sharp rise in global crude oil prices. Diesel prices,
which are still regulated, rose by only 7 per cent. The price gap between the two fuels therefore
widened
by almost 4 per cent from 2008-09 to first quarter of 2011-12. This strengthened buyer preference for
diesel cars and UVs. CRISIL Research therefore expects diesel penetration in the Indian cars & UVs
segment to rise by 2-3 per cent to 38-40 per cent in 2011-12.

Carmakers launching more diesel models, especially in the small cars segment
To meet the rising demand for diesel cars, manufacturers are launching more diesel variants, especially
in the small-car segment. In 2010-11, this segment had a 60 per cent share in total car & UV sales.
Launches of diesel variants in this segment will mark a sharp shift in diesel penetration levels. A few
years ago, diesel variants were largely restricted to the sedan (A3-A6) models, which accounted for
only 17 per cent of total car & UV sales.

Car manufacturers have launched a number of diesel models in the last two months. Volkswagen,
Nissan, General Motors and Ford launched Polo, Micra, Beat and Figo in the small-car segment with
diesel variants as well. In 2010-11, more than one-fifth of small cars sold were diesel cars. Of the 2.5
million cars and UVssold in the year, 910,000 were diesel-based. Launch of diesel variants in the
volume-heavy small-car segment will further increase penetration of diesel cars over the next 5 years.
Sales of diesel cars & UVs will likely more than double to 2.3 million units in the next five years. CRISIL
Research therefore expects penetration levels of diesel vehicles to rise to nearly 45 per cent in 2015-16
from 36 per cent in 2010-11. Any move by the government to reduce subsidies on diesel or impose
additional excise duty on diesel cars could bring down penetration levels, and defer the break-even
point
of diesel cars by 6-8 months. Despite that, CRISIL Research expects diesel car sales to remain at about
2 million
Efficiency of diesel on average is 30 per cent more than petrol.
Elasticity of Demand
Diesel, as an economic good, is normal and ordinary. As for most such goods and services, change in
quantity of diesel demand depends essentially on changes in (a) its own price, (b) disposable income,
(c) price of complements, (d) price of supplements, and (e) price of alternatives / substitutes. The
impact of changes in own price is summarised in the measure of own-price elasticity of demand. The
impact of changes in disposable income is summarised in the measure of income elasticity of
demand. The impact of changes in prices of complements, supplements, and substitutes are included
in the respective measure of cross-price elasticity of demand.
The complementary goods for diesel are those that use it as fuel (for example, motor vehicles,
railway engines, motorised vessels, pump-sets, generator-sets; cf. section 1 on uses of diesel). In the
present state of technology, there often is high degree of technological specificity precluding
alternative fuel-use. This imparts strong complementarity in demand for diesel (or indeed any fuel).
The existing stock of such complementary goods, that principally use diesel as input / fuel,
constitutes a very large constituency of economic agents. Feasibility of reform options is strongly
influenced by their strength in the political-economy. Unfortunately, weaknesses in the institutional
mechanism have led to growth in both intensive and extensive use of diesel.
As different from complementary goods, supplementary goods for diesel may constitute of
specialised equipment that capture desirable / undesirable by-products from diesel exhaust. In
particular, transport vehicles entail certain retrofits to capture and minimise particulate and non-
particulate emissions.
Substitutes for diesel constitute of other fuels (including kerosene, motor spirit / gasoline / petrol,
LPG, natural gas, coal, electricity). But, most complementary goods currently using diesel as input /
fuel also entail significant retrofitting to enable compatibility with substitutes. Often, substitution
with or transition to, alternative / substitute fuel use may be prohibitively costly and therefore
‘unviable’. It is only in recent years that vehicles and engines with multiple-fuel storage and use
capabilities are being viably produced for use of alternative fuels.
In section 2, this report discusses sector / activity wise consumption of diesel. It appears that most of
diesel is utilised for intermediate demand (as input in some production activity). Less than four per
cent of total diesel consumption is for final demand. 31 Ghosh (2010) however, analyses the
relationship between aggregate (intermediate plus final demand) consumption of diesel and GDP
growth in India for the period between 1972-3 and 2005-6. The estimation method using co-
integration and error-correction techniques respectively yield long-run and short-run elasticity ( Table
10). While, estimates of income elasticity for HSD demand is generally low, the estimate on price
elasticity of demand is statistically insignificant (not shown here).
Ramanathan (1999) estimated the income and price elasticity of gasoline (motor spirit / petrol)
demand in India for the period between 1972 and 1994. Unlike for HSD, almost entire gasoline is
utilised for final consumption to drive private vehicles (including two-wheelers). Both short- and
long-run price elasticities of gasoline demand in India are lower than that for higher income countries
like Denmark and Kuwait (estimated using analogous methods). However, income elasticity of
gasoline demand is estimated to be much higher than that for Kuwait. This may be due to a
combination of factors including, (a) high technological specificity between the fuel used and the
ignition system, constituting strict complementarity that may be prohibitively costly to retrofit, (b)
rapid rise in petroleum energy intensity of GDP. It is likely that, in the short-run, price elasticity of
diesel demand may be lower than that for gasoline.
In an earlier paper, Jha and Mundle (1987) estimate partial and total price response elasticity, that is,
the impact on WPI of changes in administered prices of select commodities. The elasticity (or direct
impact) of WPI due to changes in price of crude oil and / or petroleum products is about 0.11. And,
the total impact on WPI is estimated to be about 0.14 (that includes the indirect impact through
linkages with other sectors). These estimates are based on the I-O tables of Planning Commission for
the year 1984-85 (at 50-sector classification).